One interesting takeaway from the report is that those companies who totally outsource their representment saw a net recovery rate that is 50% higher than those who rely solely on in-house teams. So, what is it that chargeback management companies do that is so valuable?

Firstly, chargeback management companies are primarily providers of software platforms. They don’t represent companies themselves; they provide tools for merchants to use. Although they integrate to the merchant’s systems and provide any technical support that’s needed, the communication provided and case evidence submitted comes down to the merchant.

Secondly, it is important to remember that many chargeback claims are legitimate, and treating every chargeback claim as fraudulent will damage a company’s relationship with their customers, affecting the customer experience.

What do these platforms do?

There are two sides to the issue of chargebacks: prevention and representment. Firstly, prevention refers to the various tactics that merchants can use to prevent chargebacks taking place, which could be anything from improving customer service and delivery tracking to using chargeback feedback that the merchant can analyse to identify the source of chargebacks. The source of a chargeback is often different from the reason provided on the original chargeback claim (reason code).

Secondly, the representment process involves bridging the merchant’s own systems and those of the card types they support through their card processor (Visa, Mastercard, etc.) so they can better communicate and share the underlying transactional information with one another. When a company receives a chargeback claim, the software will bring together data that the company provides, to be used to determine whether the claim appears legitimate and, if it is found that it is likely not to be, submit the information that might remedy the invalid claim to their processing bank, which reviews the information and forwards onto the consumer’s bank if they agree the claim may be invalid.

This can be done by hand, but technology-enabled solutions are far quicker and often more accurate, because they compile information without the need to manually copy and paste into a single document. For this reason alone, it is easy to see why there is such a large gap between the results of in-house teams and chargeback management companies.

For example, one of a merchant’s customers could submit a chargeback claim to their bank, saying that a delivery of an item was never made. A chargeback management system would match the chargeback record to the original sale record and automatically compile the details into a single document. The system will also look at the order itself – checking, for example, that the delivery has in fact been made. If it turns out that the delivery was made to the correct address and the customer’s signature was taken, then the chargeback management system could submit that information to defend the claim. And because this is all happening inside a merchant’s digital systems, this process can take place extremely quickly.

The benefit is that merchants can intervene in disputes if they wish and have oversight into both the big picture and individual disputes, but most are content to let the representment system run its course. Because they are based on machine learning, the system will continually improve itself, and because it is a cloud-based platform, it will be kept up to date without the need for input from merchants.

Reducing chargebacks and improving the bottom line for businesses

We know that first-party misuse happens largely because it is easy – one call to your bank and you can get your money back on an order. Chargeback management and defending transactions “teaches” the small number of customers who willingly or unknowingly abuse this system that it doesn’t work, and they will quickly get the message, leading to reduced illegitimate chargebacks and increased profits for companies.